chapter  5
11 Pages

The failure of economic systems

Mn is a marginal private benefit (marginal profit) function showing that marginal profits decline as more land is converted . Marginal here means ' extra', so Mn is a curve showing the extra profits that come from converting one more unh ofland from, say, forest to agriculture. This curve falls as more land is converted due tO rising conversion costs as the conversion frontier is spatially extended, and/or decJining land productivity as land is developed. This seems to be a reasonable representation of reality since most of the world's land suitable for agriculture is already in use. 'New' land is therefore likely to be of lower productivity. How much land would bc converted to agriculture or other developmental uses ifthe free market ruled? In Figure 5.1 the

Mit ... Sub Effect 01 population growth


Effect 01 inlrastructure and incorne growth

Land conversion

and incorne rowth

rastructu e

Finally, land use is rarely left to market forces: government intervention is the rule not the exception. Such interventions often have deleterious environmental consequences due to the artificial encouragement of deforestation. The most widely studied interventions are subsidies to livestock, credit and land clearance generally, and the under-pricing and under-taxation of logging concessions - see Binswanger (1989), Schneider (1992), Repetto and Gillis (1988). (How far forest pricing causes accelerated deforestation through 'excessive' logging is disputed. Repetto and Gillis (1988) and Grut et al. (1991) argue that pricing and concession policies create 'rent seeking' activity, i.e. they attract those who seek out profitable opportunities for land conversion, whilst the exchanges between Hyde and Sedjo (1992, 1993) and Vincent (1993) suggest that raising forest taxation will do little for slowing rates of logging) .